Correlation Between International Equity and Global Fixed

Can any of the company-specific risk be diversified away by investing in both International Equity and Global Fixed at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining International Equity and Global Fixed into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between International Equity Portfolio and Global Fixed Income, you can compare the effects of market volatilities on International Equity and Global Fixed and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in International Equity with a short position of Global Fixed. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Equity and Global Fixed.

Diversification Opportunities for International Equity and Global Fixed

-0.37

Correlation Coefficient

International Equity  Global Fixed

Very good diversification

The 3 months correlation between International and Global is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding International Equity Portfolio and Global Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Fixed Income and International Equity is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on International Equity Portfolio are associated (or correlated) with Global Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Fixed Income has no effect on the direction of International Equity i.e., International Equity and Global Fixed go up and down completely randomly.

Pair Corralation between International Equity and Global Fixed

Assuming the 90 days horizon International Equity Portfolio is expected to under-perform the Global Fixed. In addition to that, International Equity is 21.08 times more volatile than Global Fixed Income. It trades about -0.13 of its total potential returns per unit of risk. Global Fixed Income is currently generating about 0.12 per unit of volatility. If you would invest  511.00  in Global Fixed Income on October 25, 2024 and sell it today you would earn a total of  6.00  from holding Global Fixed Income or generate 1.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

International Equity Portfolio  vs.  Global Fixed Income

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's essential indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Global Fixed Income

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Fixed Income are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Global Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with International Equity and Global Fixed

The main advantage of trading using opposite International Equity and Global Fixed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Equity position performs unexpectedly, Global Fixed can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Global Fixed will offset losses from the drop in Global Fixed's long position.

The idea behind International Equity Portfolio and Global Fixed Income pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the FinTech Suite module to use AI to screen and filter profitable investment opportunities.